To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Yuexiu Transport Infrastructure (HKG:1052), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Yuexiu Transport Infrastructure:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.06 = CN¥1.9b ÷ (CN¥36b - CN¥4.6b) (Based on the trailing twelve months to December 2021).

So, Yuexiu Transport Infrastructure has an ROCE of 6.0%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

View our latest analysis for Yuexiu Transport Infrastructure

Above you can see how the current ROCE for Yuexiu Transport Infrastructure compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Yuexiu Transport Infrastructure's ROCE Trend?

In terms of Yuexiu Transport Infrastructure's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.0% for the last five years, and the capital employed within the business has risen 44% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

Long story short, while Yuexiu Transport Infrastructure has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 8.3% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 4 warning signs with Yuexiu Transport Infrastructure (at least 2 which are a bit concerning) , and understanding these would certainly be useful.

While Yuexiu Transport Infrastructure isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.